1. The Investors Journey
In December, we published “Loving Lilium (20): The Investors Journey II.” We are now providing an update to this article, revising some of our projections. Additionally, we will examine Lilium’s ambitions in the eRAM segment, as the company says it could introduce a 100-passenger fully electric CTOL aircraft by 2035, with a range of 1000 km.
2. Update
In December, we projected a share price range of $1 to $3.20 for 2024. We were hopeful that strategic investors would enter soon, thereby avoiding further dilution from the 2023 levels of $1 in May and $1.30 in July.
Firstly, we are still awaiting the entry of a significant strategic investor, who would purchase new (dilutive) shares alongside acquiring shares on the stock market, similar to the Archer/Stellantis model.
Secondly, in May 2024, Lilium raised $113 million in fresh capital at $1.05 per share, in between the 2023 May $1 and July $1,30 levels. Following the announcement, the share price plummeted sharply, opening at $1,22 on Monday (a few days before the announcement) and closing at $0,89 on Friday (post-announcement). Three weeks later, in June, the price even reached Barclays’ base-scenario level of $0,75. However, it rebounded to $ 1,02 after the Saudi sales deal was announced. Earlier this week, the price fell to a year-to-date low $ 0,71 cents on August 5, dubbed the Japanese Black Monday.
Source: Yahoo Finance 2024 YTD – 32,21%
The share price is behaving like a call option on the future. Notably, the executive board and management did not participate in the May 2024 PIPE, signaling weakness, especially given their broad participation in July 2023. Additionally, the delay of the first manned flight from the end of 2024 to early 2025 is concerning, as it will postpone some early Pre-Delivery Payments (PDPs).
Despite these setbacks, we remain confident in Lilium’s strategy and proposition and are committed to buying during dips to lower our average price. We hope the board, including the new CFO Johan Malmqvist (formerly of Polestar), can achieve a breakthrough to attract strategic investors.
As we look ahead to the second half of 2024, we anticipate the share price to fluctuate between $0.60 and $1.30. The upper range of this estimate will largely depend on significant positive sales developments.
3. Our Scenarios and Best Estimate Target
Over the long term, we continue to believe that a sustainable business model remains achievable in the 2028-2032 timeframe.
Base Scenario ($1)
In our base scenario, we project an annual production of 200 Lilium Jets, leading to an estimated annual revenue of up to €2 billion from both production and recurring services. Assuming a 5% EBITDA margin, with 1 billion outstanding shares by 2028, and applying a valuation of 10 times EBITDA, we estimate the share price at $1.
Upside Scenario ($8)
Our upside scenario, as outlined in “The Investor’s Journey II” (with a projected range of $4-$8), remains plausible if Lilium can generate substantial strategic and intellectual property value or if sales of the Lilium eVTOL Jet exceed expectations. As Ed Wegel discusses in this video (at 2:17), the Lilium Jet is uniquely positioned in the market and that the demand for this product will be off the charts. In this scenario, with an annual production of 400 Lilium Jets and revenues up to €4 billion, coupled with a valuation of 20 times EBITDA, the share price could reach $8. Alternatively, this valuation can also be justified by doubling the annual revenue projection of $4 billion.
Downside Scenario ($0)
On the downside, the share price could end up significantly below $1. This might occur if annual production is constrained by weak sales, or if the company faces major challenges such as certification delays, a sharply increased diluted share count exceeding 1.5 billion shares, and scenarios like necessarily consolidation or even liquidation (down to $0). While we believe Lilium will emerge as a leader due to its unique ducted fan design, we anticipate a wave of severe consolidation and liquidation among competitors that rely on less distinctive open rotor designs. You can read more about it in this article from The National.
Best Estimate Target ($2,80)
Based on these scenarios, with an assumed 40% probability for the base case, 30% probability for the upside case, and 30% probability for the downside case, we have now set the best estimate target at $2,80.
4. Funding needs
At the current burn rate of approximately $100 million per quarter, Lilium is expected to run out of cash by October this year. Lilium requires additional capital to bridge the funding gap until the critical milestone of the first manned flight, which is expected to trigger some prepayments. In July 2023, we anticipated this gap to be nearly closed. However, a year later, it has become evident that annual costs are rapidly increasing from $250 million to over $400 million due to the assembly of test aircraft and the expansion of production and test facilities, including hiring more employees. Not only are costs rising, but the first manned flight has also been delayed from the end of 2024 to the beginning of 2025. Despite this, Lilium has reaffirmed its 2026 target for first deliveries and provided details on its test program schedule.
We estimate that Lilium will need an additional $1 to $1.25 billion in funding to complete the development of the eVTOL Lilium Jet and reach cash flow positivity from operations. This funding, after raising roughly $1.5 billion to date, will likely consist of a mix of dilutive and non-dilutive sources, including government-backed (convertible) loans and pre-delivery payments (PDPs) from clients.
Capital Raise
At the end of July, Lilium announced a new potential capital raise program of up to $250 million. This is a shelf filing, meaning it may occur in the future, in part or in whole, depending on strategic opportunities and market conditions. Of the previous $250 million, up to $100 million can be placed by B. Riley: “Lilium will have the right, but not the obligation, from time to time to direct B. Riley on any trading day to purchase Shares on a principal basis.”
Government support
According to Bloomberg information published on July 14, Klaus Roewe announced that Germany and France are likely to provide funding of € 100 million and € 250 million, respectively. Earlier, on May 15, the Federal Government of Germany and the Free State of Bavaria commissioned the state development bank KfW in Frankfurt to conduct due diligence on Lilium as part of the customary state support process.
Source Lilium video: jet.lilium.com
Once this diligence is completed with satisfactory results, Lilium expects to receive guarantees from the Federal Government and the Free State of Bavaria as security for a KfW loan, the exact amount of which is yet to be determined. Lilium is also in advanced discussions with the French government to expand its industrial footprint with high-volume facilities in France, which could bring additional support from the French Government. Confirmation of government support is essential for US investors and will greatly enhance their confidence. We are currently awaiting updates on the outcome of the due diligence process.
5. Ambition to lead the e-RAM market
Lilium’s ambition to lead the electric Regional Air Mobility (e-RAM) market is both inspiring and promising. Rooted in their mission of decarbonization, Lilium aims to become a frontrunner in this emerging field.
Source: LovingLilium.com
CEO Klaus Roewe views the Lilium eVTOL Jet as a crucial first step toward decarbonizing the RAM market. Lilium’s ambition extends beyond just eVTOL aircraft; they are committed to making the conventional RAM market more sustainable as well, addressing the fact that up to 80% of existing commerical RAM flights fall within a 2000km range. According to Bloomberg July 14, Daniel Wiegand announced that Lilium could introduce a 100-passenger CTOL aircraft by 2035, with a range of 1000km, and extend that to 2000km by 2045.
Source: Lilium Corporate Presentation July 2024
Lilium plans to achieve this with fully electric conventional aircraft, positioning itself not merely as an eVTOL competitor but as a comprehensive player in the electric RAM sector. Unlike hydrogen initiatives, which are three times less cost-effective, Lilium focuses on electric propulsion to ensure a more cost-efficient and sustainable future. The company’s core technologies, both existing and in development, are designed to facilitate an earlier and more cost-effective entry into the market. For additional insights, check out Frank Theelen’s recent YouTube interview with Klaus Roewe and Daniel Wiegand.
Achieving this ambition will require substantial investment, with estimates suggesting a budget in the range of $ 4-8 billion over the next decade. The next critical step is securing a major strategic investor to turn Lilium’s ambitious goals into reality.
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Disclaimer. Please note that this article is not an advice to buy or sell Lilium stock. Investing in startup’s is high risk and timing is difficult, you can lose all your money. So the (high) risk profile must fit your (high) risk appetite. We are not independent; we have a Lilium position. We firmly believe that Lilium becomes the leading eVTOL in Regional Air Mobility, and perhaps the leading eCTOL in RAM. We don’t believe in Urban Air Mobility (UAM) for a viable business model.
